On December 31, 2017, American Bank enters into a debt restructuring agreement w

Question

On December 31, 2017, American Bank enters into a debt restructuring agreement with Windsor Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,700,000 note receivable by the following modifications:

Windsor pays interest at the end of each year. On January 1, 2021, Windsor Company pays $1,790,000 in cash to American B

Part 3:

1. Reducing the principal obligation from $2,700,000 to $1,790,000. 2. Extending the maturity date from December 31, 2017, to January 1, 2021. 3. Reducing the interest rate from 12% to 10%. Prepare the interest payment entries for Windsor Company on December 31, of 2018, 2019, and 2020. ( automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit December 31, 2018 December 31, 2019 December 31, 2020 LINK TO TEXT What entry should Windsor make on January 1, 2021? (If no entry is required, select "No Entry" for entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit January 1, 2021

Explanation / Answer

Journal entries:

Interest expense a/c

To Cash or Bank a/c

(Being interest paid)

(1,790,000 x 10%)

$179,000

$179,000

nterest expense a/c

To Cash or Bank a/c

(Being interest paid)

$179,000

nterest expense a/c

To Cash or Bank a/c

(Being interest paid)

$179,000

Note payable a/c

To Cash or Bank a/c

(Being amount borrowed through note payable repaid)

$1,790,000

Date General Journal Debit Credit Dec 31, 2018

Interest expense a/c

To Cash or Bank a/c

(Being interest paid)

(1,790,000 x 10%)

$179,000

$179,000

Dec 31, 2019

nterest expense a/c

To Cash or Bank a/c

(Being interest paid)

$179,000

$179,000 Dec 31, 2020

nterest expense a/c

To Cash or Bank a/c

(Being interest paid)

$179,000

$179,000 Jan 1, 2021

Note payable a/c

To Cash or Bank a/c

(Being amount borrowed through note payable repaid)

$1,790,000

$1,790,000

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